No. 11-10289

In the

United States Court of Appeals

for the Fifth Circuit

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NETSPHERE, INC., ET AL,

Plaintiffs

JEFFREY BARON,

Defendant- Appellant

DANIEL J SHERMAN,

Appellee

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Interlocutory Appeal of Orders

Adding Receivership Parties and

Disposing of Receivership RES

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From the United States District Court

Northern District of Texas, Dallas Division

Civil Action No. 3-09CV0988-F

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RESPONSE AND MOTION FOR RELIEF WITH RESPECT TO

SHERMAN MOTION TO DISMISS, SUBSTITUTE APPELLEES,

AND EXTEND BRIEFING DEADLINES

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Case: 11-10289 Document: 00511598080 Page: 1 Date Filed: 09/09/2011

TO THE HONORABLE FIFTH CIRCUIT COURT OF APPEALS:

COMES NOW Appellant Jeff Baron and makes this response, objection and

motion for relief with respect to two motions filed by Sherman, being: (1) 8-30-11

OPPOSED MOTION filed by Appellee Mr. Daniel J. Sherman: Trustee's Motion to

Dismiss, or in the Alternative for Designation of Appellee and to Extend Briefing

Deadline to dismiss the appeal [6893047-2] (“Motion 1”); and (2) 7-06-11

OPPOSED MOTION filed by Sherman for Other Relief and to expedite briefing

filed in case 10-11202 as Document number 00511531893) (“Motion 2”).

I. RESPONSIVE ARGUMENT AND AUTHORITY

Sherman’s Request to be Removed as Appellee

In Motion 1 Sherman argues that he has no interest in the instant appeal and

should be removed as Appellee. At the same time, in Motion 2 (at page 7)

Sherman argues the opposite— that he has an interest in all of the appeals and

therefore has standing to seek relief with respect to the appeals, including the

instant appeal. Previously, Sherman argued that because Sherman had moved for

the receivership against Baron, Sherman was the proper appellee and thus Sherman

should be substituted in as the sole appellee in case 11-10113 in place of Vogel.

(Page 3 of Document 00511504433 filed 6/09/2011 in case 11-10113). Now

Sherman argues the opposite— that he has no interest in the instant appeal and

should be removed as Appellee and that Vogel should be inserted in his place, even

though Sherman moved for the receivership against Baron and, as discussed above,

claims an interest in all of the appeals including the instant appeal.

Case: 11-10289 Document: 00511598080 Page: 2 Date Filed: 09/09/2011

The notice of appeal in the instant appeal was filed on March 3, 2011.

Sherman waited half a year and until after the Appellant had filed his principal

briefing, before asserting that he has no interest in the appeal and should be

removed as Appellee. In conjunction with his delayed motion to be removed as

Appellee, in Motion 1 Sherman seeks a delay in his briefing deadlines. At the

same time, in Motion 2, Sherman argues the opposite, and moves for an expedited

appeal of the instant case. (Motion 2 at page 9-11).

Sherman has offered no authority for his request to be removed as Appellee.

Rather, Sherman has expressly admitted that he has an interest in this appeal.

(Motion 2 at page 7).

As an underlying issue of law, where party has an interest in

the appeal he is a proper appellee. Legault v. Zambarano, 105 F.3d 24, 26 (1st Cir.

1997). Additionally, Sherman has acted as an Appellee in moving to dismiss this

appeal and has objected to being the Appellee only after the Appellant’s principal

brief was filed. See Terry v. Sparrow, 328 BR 450, 453 fn 1 (M.D.N.C. 2005)

(Trustee’s motion to dismiss appeal was factor in determining that the Trustee was

the proper appellee). Accordingly, in light of (1) his admission that he is an

interested party in this appeal; (2) his affirmative requests for relief filed as the

Appellee in this appeal; and (3) the timing of Sherman’s raising of the issue;

Sherman’s requests to be removed as Appellee and to delay the briefing schedule

should be denied.

Pages are cited herein based on the PACER pagination. Accordingly, Motion 2 printed page 7

corresponds to page 11 as referenced in this response.

Printed page 3 of Motion 2.

Case: 11-10289 Document: 00511598080 Page: 3 Date Filed: 09/09/2011

Sherman Mootness Motion is Legally Frivolous, His Certificate of Conference to

the Court is False, and Sherman Should Be Sanctioned

Sherman’s Mootness Argument

Sherman offers no precedential authority in support of his mootness

argument. Instead, Sherman cites an unpublished case

(that pursuant to the

express rules of this Honorable Court is not precedent) holding that where a party

does not seek to stay the sale of property that is sold to good faith purchasers, an

appeal of that sale is moot. Notably, good faith purchasers are afforded special

protection under the law. The importance of securing the rights of good faith

purchasers is so fundamental that the Supreme Court explained almost 200 years

ago: “Strong as a plaintiff's equity may be, it can in no case be stronger than that of

a purchaser, who has put himself in peril by purchasing a title, and paying a

valuable consideration, without notice of any defect in it, or adverse claim to it.”

Boone v. Chiles, 35 U.S. 177, 210 (1836). Accordingly, with few exceptions, as a

special rule, good faith purchaser status trumps a challenge to an order confirming

the sale of property. See generally In re Bleaufontaine, Inc., 634 F.2d 1383, 1388

n.7 (5th Cir. 1981). No order on appeal involves property that has been sold to a

good faith purchaser and the rule has no application in this appeal.

The good faith purchaser exception does not apply to the payment of money.

As a well established express principle of long standing and fundamental law,

even after money is paid an appellate court is fully empowered to reverse the order

to pay the money, and if reversed, the aggrieved party can recover his money back.

S.E.C. v. Janvey, 404 Fed.Appx. 912, 916, (5th Cir. 2010).

Case: 11-10289 Document: 00511598080 Page: 4 Date Filed: 09/09/2011

Eg., Dakota County v. Glidden, 113 U.S. 222, 224 (1885). A case is only moot

when the parties lack “a legally cognizable interest in the outcome”. E.g., Powell v.

McCormack, 395 U.S. 486, 496 (1969). As a matter of well-established law a case

is justiciable when the court can order “specific relief through a decree of a

conclusive character”. Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 241 (1937).

This Honorable Court can issue a decree of conclusive character with respect to

each of the matters involved in the instant appeal.

Specific Orders on Appeal

Sherman argues that District Court Docket No.s 274, 275, 276, 278, 279,

283, 284, 292, 295, 297, each of which ordered the disbursement of receivership

funds are moot because the payments ordered have already been made. As

discussed above, a matter of well-established and fundamental law, even after

money is paid an appellate court is fully empowered to reverse an order for the

payment of money. Dakota, 113 U.S. at 224. This Court can clearly give effective

relief by reversing the District Court’s orders to pay money, and Sherman has

offered no authority to the contrary.

Sherman argues that District Court Docket No. 285 is moot because part of

the relief denied by the Order is moot. Contrary to Sherman’s representation the

controversy involves more than server fees. Baron moved for an order for his

life’s work (computer code on a computer hard disk that was threatened with

deletion) to be backed up. The District Court failed to allow Baron to reply to

Sherman’s response to his motion, and denied the motion without allowing Baron

Case: 11-10289 Document: 00511598080 Page: 5 Date Filed: 09/09/2011

the procedural due process required by the Federal Rules of Procedure and Local

Rules of the Northern District of Texas. The underlying substance of the denied

relief was the preservation of Baron’s assets, an express purpose of the ex parte

receivership imposed upon Baron. The dispute is live, and the matter is not moot.

Sherman argues, without citation to any authority, that where an emergency

hearing is requested upon a motion for relief, the relief requested is automatically

mooted by the failure to grant the relief on an emergency basis. Where a motion is

made for distribution or disposal of receivership assets for a certain purpose, so

long as the distribution or disposal has been declined by the District Court the

controversy is live and the matter is not moot. For example, Baron’s need for a

heated apartment (refused him by the receiver) was acute in the freezing weather of

February. The matter is not moot, however, as in the next 90 or 120 days the

weather again will be cold and while the District Court has awarded a million

dollars of Baron’s life savings to the receiver and his law partners as ‘fees’, Baron

is still locked by the receiver in an apartment without heating or air conditioning.

Sherman argues that the injunction ordered in District Court Docket No. 318

is moot because it was vacated by the District Court after the order was appealed.

As a preliminary matter the District Court is without jurisdiction to vacate the

order after it was appealed and thus has no jurisdictional authority to moot a matter

on appeal. Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982);

Coastal Corp. v. Texas Eastern Corp., 869 F.2d 817, 820 (5th Cir. 1989); Dayton

Indep. School Dist. v. US Mineral Prods. Co., 906 F.2d 1059, 1065 (5th Cir. 1990).

Case: 11-10289 Document: 00511598080 Page: 6 Date Filed: 09/09/2011

Perhaps more relevantly, counsel for the Appellant, Baron, sought in writing

conference with Sherman to reduce the amount of issues and orders taken up in

this appeal. Appellant’s counsel requested that Sherman’s counsel agree to

stipulate that as many orders as possible were moot and thus eliminate the

necessity of including the orders in this appeal. Appellant’s counsel specifically

and expressly requested that Sherman’s counsel agree that Doc 318 was moot.

Sherman’s counsel, however refused, explaining that it was his position that Baron

had violated the injunction ordered in Doc 318, and thus the matter was not moot.

See Exhibit A. Thus, directly contrary to the certification of conference

presented by Sherman, counsel for Appellant did attempt to reach agreement

to avoid including orders in this appeal expressly on the basis of mootness,

and it was Sherman’s counsel who refused. After rejecting the offer to

voluntarily agree that orders expressly including Doc 318 were moot, Sherman

now seeks to have the order declared moot and has in all essence falsely certified

to the Court that Baron’s counsel refused agreement as to removing the order from

this appeal. It is obviously a waste of this Court’s resources, and the efforts of the

Appellant’s counsel to brief orders that both sides can agree are moot. Sherman

refused to reach agreement with Appellant’s counsel as to the mootness of any

order (which is Sherman’s absolute right).

However, Sherman then falsely

represented to this Court that it was Appellant’s counsel that refused agreement.

Notably, the orders such as Doc 318 are not moot but can easily be made so by the agreement

of counsel. However, if Sherman insists, for example, that Baron may have violated an order,

then Sherman can force the appeal of the order by creating a controversy involving the order.

Case: 11-10289 Document: 00511598080 Page: 7 Date Filed: 09/09/2011

The District Court in Docket No. 288 gave the receiver a blank check to

dispose of essentially any and all of the receivership assets of the receivership

estates of Novo Point, LLC, and Quantec, LLC, (in order to pay alleged debts of

Jeff Baron) without the requirement of any further order by the District Court.

Sherman argues, with no supporting legal authority, that because after that order

was appealed and the District Court entered subsequent orders and was stayed

pending appeal, the status of the case has changed and the order is no longer ripe

for appeal. As discussed above, once the order was appealed the District Court

was divested of jurisdiction over the matter and was without power to alter the

status of the order on appeal. Dayton, 906 F.2d at 1063 (“A district court does not

have the power to ‘alter the status of the case as it rests before the Court of

Appeals’.”). Moreover, it is axiomatic that stay pending appeal does not moot the

order then on appeal because it has been stayed.

Sanctions Against Sherman Are Appropriate

As discussed above, Sherman offered no legal precedent for his mootness

argument. His argument ignores fundamental and long-established principles of

law. For example, Sherman argues that an order to pay money cannot be appealed

after if the money has been paid. Such an argument can be described no other way

than frivolous. This Honorable Court has issued an order in relationship to appeal

from the case below expressly warning against the filing of frivolous motions.

Sherman clearly did not heed this Court’s warnings. Moreover, Sherman has

engaged in the worst sort of gamesmanship, waiting months to file his motion,

Case: 11-10289 Document: 00511598080 Page: 8 Date Filed: 09/09/2011

taking completely inconsistent positions in different motions pending before the

Court of Appeals at the same time, and refusing to reach agreement to limit the

orders included in this appeal and then falsely representing that Counsel for the

Appellant opposed agreement to moot various orders that clearly can be mooted by

agreement of the parties and do not need to be a live controversy, for example, Doc

318.

In light of the foregoing, appropriate sanctions should be imposed against

Sherman.

Sherman’s Appealability Argument

Sherman offers the argument that the District Court Orders placing a dozen

new receivership parties and estates under receivership are non-appealable.

Contrary to the assertions of Sherman, the appealed from orders (District Court

Docket Numbers 272, 287) make no finding that any company is owned or

controlled by Baron.

Rather, more than a dozen independent entities were simply

ordered (without service of process or hearing) placed under the District Court’s

receivership, and one entity was ordered removed. Sherman ignores that the

entities were placed into receivership and were made subject to a long series of

injunctions and argues instead that there was merely a turnover over. The

challenged orders are clear: The entities were made receivership parties. As there

was also an injunction imposed upon the entities by virtue of the appealed from

As shown by Sherman’s unusual certificate of conference, Sherman’s counsel were well aware

of the intense work load placed upon the undersigned with respect to the mass of motions filed

by Sherman and Vogel, and Sherman filed his motion willfully and intended that the motion

would require a substantial time commitment to respond.

SR. v2 pp365,405.

Case: 11-10289 Document: 00511598080 Page: 9 Date Filed: 09/09/2011

orders, the orders clearly fall within the scope of §1292(a).

Sherman’s argument also lacks a logical footing. To Sherman’s argument,

entities which are not parties to a lawsuit and have not been served with process,

can be placed into receivership ex parte without even being named in the

receivership order. After the ‘blank’ receivership order can no longer be appealed,

those companies can then be identified and included in the receivership, but the

companies have no right to appeal. To Sherman’s view, the statutory right to

interlocutory appeal pursuant to 28 U.S.C.§1292(a) when a receivership is imposed

can be abrogated by entering a receivership order without naming receivership

parties, and then later, after the time for appeal of that order has lapsed, entering an

order reciting the names of the included parties. However, as an established

principle of law, an independent right to appeal extends to orders modifying or

amending previous orders. E.g.,, Taylor v. Sterrett, 640 F.2d 663, 666-667 (5th Cir.

1981). Accordingly, an order which “clarifies” a previous order to place new

parties into receivership, is clearly an appealable order pursuant to 28

U.S.C.§1292.

Even if Sherman’s argument were logically valid and were supported by

some authority, the appeals should still be considered pursuant to the doctrine of

pendent appellate jurisdiction. A refusal to allow the appeal would defeat the

principal purpose of allowing an immediate appeal of a receivership order. See e.g.,

Morin v. Caire, 77 F.3d 116, 119-120 (5th Cir. 1996). The claims on appeal of these

orders are clearly closely related to the other issues before the Court in this appeal.

Case: 11-10289 Document: 00511598080 Page: 10 Date Filed: 09/09/2011

Specifically, a core issue raised in the instant appeal is whether the District Court is

divested of jurisdiction over the matter appealed by an interlocutory appeal. The

Appellants argue in this appeal that the District Court was divested of jurisdiction

over the matters on appeal and therefore lacked authority over the matter other than

to maintain the status quo as of the filing of the notice of appeal. See e.g., Griggs,

459 U.S. at 58; Coastal Corp., 869 F.2d at 820. The same facts and legal issue

apply to the orders objected to by Sherman. It materially serves the interest of

judicial economy to review orders expanding the jurisdictional authority of a

receiver (while the receivership was on appeal) at the same time the Court takes up

the issue of the effect of filing an appeal on the District Court’s jurisdiction.

The District Court’s authority, if challenged on appeal, is best challenged

before the District Court takes action based on that asserted authority, and not after.

For that reason receivership orders are allowed interlocutory review. Post-appeal

orders of the District Court to carry out the purposes of the receivership, which

have jurisdictional impact and will necessarily impact the validity of numerous

future orders of the court,

should be allowed interlocutory review as a matter of

fundamental judicial economy.

Administrative actions such as ordering the turnover of stocks or other similar property do not

impact a District Court’s underlying jurisdiction and authority. Accordingly, such actions are not

afforded interlocutory review. By contrast, the validity of orders placing new parties into

receivership and orders expanding the territorial authority of a receiver directly impact the

validity of all future orders based on the jurisdiction of the District Court asserted by virtue of

those orders.

Case: 11-10289 Document: 00511598080 Page: 11 Date Filed: 09/09/2011

WHEREFORE, the Appellants respectfully move this Honorable Court to

deny Sherman’s motions and consider imposing sanctions against Sherman,

including sanctions to compensate Appellant’s counsel for the costs of responding

to the motions.

Respectfully submitted,

/s/ Gary N. Schepps

Gary N. Schepps

Texas State Bar No. 00791608

5400 LBJ Freeway, Suite 1200

Dallas, Texas 75240

(214) 210-5940 - Telephone

(214) 347-4031 - Facsimile

Email: legal@schepps.net

FOR APPELLANT

Case: 11-10289 Document: 00511598080 Page: 12 Date Filed: 09/09/2011

AUTHORITIES CITED

FEDERAL CASES

Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 241 (1937)..................................... 5

Boone v. Chiles, 35 U.S. 177, 210 (1836).............................................................. 4

Coastal Corp. v. Texas Eastern Corp., 869 F.2d 817, 820 (5th Cir. 1989) .........6, 11

Dakota County v. Glidden, 113 U.S. 222, 224 (1885)............................................ 5

Dayton Indep. School Dist. v. US Mineral Prods. Co., 906 F.2d 1059, 1065 (5th

Cir. 1990) ........................................................................................................6, 8

Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982)...............6, 11

In re Bleaufontaine, Inc., 634 F.2d 1383, 1388 n.7 (5th Cir. 1981) ........................ 4

Legault v. Zambarano, 105 F.3d 24, 26 (1st Cir. 1997).......................................... 3

Morin v. Caire, 77 F.3d 116, 119-120 (5th Cir. 1996)...........................................10

Powell v. McCormack, 395 U.S. 486, 496 (1969).................................................. 5

S.E.C. v. Janvey, 404 Fed.Appx. 912, 916, (5th Cir. 2010).................................... 4

Terry v. Sparrow, 328 BR 450, 453 fn 1 (M.D.N.C. 2005) .................................... 3

Case: 11-10289 Document: 00511598080 Page: 13 Date Filed: 09/09/2011

CERTIFICATE OF SERVICE

This is to certify that this filing was served this day on all parties who receive

notification through the Court’s electronic filing system.

CERTIFIED BY: /s/ Gary N. Schepps

Gary N. Schepps

COUNSEL FOR APPELLANT

CERTIFICATE OF CONFERENCE

Counsel for Sherman have stated they oppose, and counsel for Vogel have not

stated whether they oppose.

CERTIFIED BY: /s/ Gary N. Schepps

Gary N. Schepps

COUNSEL FOR APPELLANT

Case: 11-10289 Document: 00511598080 Page: 14 Date Filed: 09/09/2011